Danielle Davis, MBA, AFC® is the CEO & Founder of Davis Money Management Solutions, LLC. Davis is the author of Couples and Currency: A Guided Journal to Help Partners Build Financial Intimacy and Generational Wealth.
Danielle provides financial coaching services to couples at DanielleReneDavis.com. Before that, she spent the last 12+ years working in various accounting and finance leadership roles and incorporated her expertise into her work.
Talk to Your Spouse First
A friend or family member asking for money is inevitable. The best time to discuss the possibility is before it happens. Failing to address the possibility in advance could lead to an impulsive promise that strains your marriage.
Discuss whether you would give or lend.
Agree upon a maximum amount.
Establish a process to work together when the issue arises.
Lend or Give?
Deciding whether to lend money to friends or family or simply give it to them involves several considerations beyond financial aspects.
What are the chances the borrower will repay the loan?
Before lending money to a family member or friend, it is important to determine whether the borrower can repay the loan. Financial stability, employment status, and past repayment history are factors considered during this evaluation. Loaning money without a reliable repayment plan can strain relationships and cause resentment.
Is giving money helpful in the long run?
The other option is to give money to friends or family members outright, which may avoid potential complications associated with loans. The borrower is not under the same expectations for repayment when receiving a gift, eliminating the risk of financial strain or damaged relationships.
A one-time gift may not necessarily address the underlying financial issues or habits that prompted the request in the first place. Giving money without strings attached can encourage dependency or perpetuate irresponsible financial behavior.
Prioritize the relationships
Open communication, mutual respect, and clear expectations are essential no matter which approach is chosen. You can offer support or empathy without money.
The relationship with the borrower
It is essential to consider the dynamics of the relationship with the borrower, each person's financial situation, and any long-term consequences for the relationship before lending money or giving it outright.
The relationship with your spouse
Your first priority should be your own marriage and financial circumstances. The amount you give or lend must be manageable for you and the relationship.
Equally important is maintaining a united front. Keep your own opinion to yourself and your spouse, and vice versa. Any communication outside the marriage must represent how you and your spouse decide to move forward together.
Alternatives to Loaning or Giving to Family or Friends
That is according to a 2022 CreditCards.com survey.
The same poll found that,
"59% of people who lent money to their family or friends expecting repayment reported doing so turned into a negative experience."
There are alternative sources of money if you want to avoid the genuine possibility that taking or giving a loan to a family member or friend will result in a negative outcome. None of us want to advocate for credit card debt, but 0% balance transfers are worth considering.
If they already own a home and have enough equity, doing a home equity loan or line of credit (HELOC) could solve the problem.
Encourage them to avoid any high-interest loan such as a payday loan, pawnshop loan, or auto title loan. Remind them that borrowing from retirement is a bad idea because your retirement is protected in bankruptcy.
Follow Modern Husbands
Start, Strengthen, or Rebuild Your Marriage. Our Marriage Toolkit empowers couples with evidence based ideas from 40+ of the nation’s leading experts in managing money and the home as a team.
Winning ideas from experts to manage money and the home as a team. 2023 Plutus Award Finalist: Best Couples or Family Content.
🔔 Click here to listen and subscribe to the Modern Husbands Podcast on Apple.
🔔 Click here to listen and subscribe to the Modern Husbands Podcast on Spotify.
Winning ideas to manage money and the home as a team delivered to your inbox every two weeks. You'll even receive a few free gifts!